Several major UK lenders have recently lowered mortgage rates, while one has introduced a cashback incentive to attract first-time buyers, signalling a potential winter price war in the mortgage market. According to Uswitch, the average two-year fixed mortgage now stands at 4.55%, down from 4.65% last week, while the average five-year fixed deal has fallen slightly to 4.84% from 5.03%. These rates assume a 75% loan-to-value (LTV) mortgage, meaning buyers need a deposit of at least 25%.
The recent drop in UK inflation to 3.6%—the first decline in five months—has sparked speculation that the Bank of England (BoE) may reduce interest rates from the current 4% in December. Since the BoE base rate directly influences lenders’ mortgage rates, any cut could provide welcome relief for borrowers.
The UK budget has also introduced measures that could affect homeowners. A proposed mansion tax will apply to properties valued over £2 million, starting at £2,500 annually and rising to £7,500 for homes over £5 million, effective from April 2028. Meanwhile, reductions in the Cash ISA limit have raised concerns that lending capacity could tighten, as building societies may have less money available for mortgages.
HSBC Launches Cashback to Attract First-Time Buyers
HSBC has unveiled a new offer giving first-time buyers up to £2,000 in cashback, alongside a round of rate reductions across its residential and buy-to-let mortgages. Brokers suggest this move could spark a competitive pricing push among high-street lenders. The bank’s actions follow a recent easing in swap rates, which are used to price fixed-rate mortgages and have led to growing expectations of a BoE rate cut on 18 December.
Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management, commented that HSBC’s cashback initiative will ease the upfront costs for first-time buyers. “The cost of buying a home can hit hard, and incentives like this can be very valuable,” she said. Ben Perks, managing director at Orchard Financial Advisers, added that HSBC appears determined to secure as many first-time buyers as possible before the end of 2025.
Other Major Lenders Cut Rates
Barclays, NatWest, and Nationwide have also trimmed pricing on some of their most competitive mortgage deals. Barclays has reduced its two-year fixed rate to 3.63% from 3.73%, with a £899 product fee, while its five-year deal remains at 3.82%. Barclays has additionally launched 95% LTV mortgages for new-build homes, halving the deposit requirement from 10% to 5%, making it easier for first-time buyers to enter the market. Their Mortgage Boost scheme further increases borrowing potential when a family member or friend is added to the application.
NatWest’s two-year deal stands at 3.71% with a £1,495 fee, unchanged from last week, while the cheapest five-year fix has edged down to 3.83%. Nationwide’s two-year fix remains at 3.83%, and the five-year deal has dropped slightly to 4.08%. Nationwide’s Helping Hand programme allows eligible first-time buyers to borrow up to six times their annual income, helping around 10,000 additional buyers annually.
HSBC continues to offer competitive 95% LTV deals for buyers with small deposits, with two-year fixes at 4.84% and five-year fixes at 4.77%. Its enhanced cashback scheme is one of the most generous currently available and is designed to support those facing high upfront costs.
Other Lenders
Halifax maintains a two-year fix of 3.99% and a five-year fix of 3.98%, while Santander has withdrawn certain low-LTV products for smaller loans but continues to offer higher LTV options for first-time buyers. For movers with a 40% deposit, Santander’s two-year and five-year fixed rates are 3.55% and 3.76%, respectively.
Skipton Building Society now allows first-time buyers to borrow up to 5.5 times their income, and Leeds Building Society has reduced the minimum household income for first-time buyer mortgages to £30,000, enabling borrowers to access larger loans.
Market Trends and Outlook
Many UK homeowners are opting for longer mortgage terms of 35 years or more, with older borrowers extending repayments well into their 70s. Higher repayment costs have been a reality in recent years due to the BoE’s elevated base rate being passed on by banks. Homeowners and potential buyers alike are closely watching whether the BoE will cut rates, while savers may hope rates remain steady.
Overall, the combination of cashback incentives, competitive rate reductions, and enhanced lending schemes has made the UK mortgage market highly dynamic. First-time buyers, in particular, stand to benefit from these changes, as lenders seek to capture market share during this period of increased competition.
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